This week brought a surprising announcement: Anthropic and xAI have formed a major partnership, with Anthropic purchasing all the computing capacity at xAI’s Colossus 1 data center in Tennessee. Kirsten tried to put a positive spin on the deal, noting that it gives xAI a fresh revenue stream. However, she also pointed out that this move suggests xAI isn’t heavily focused on training its own cutting-edge AI models, making it harder for the company to position itself as an innovative, forward-looking enterprise. Sean, ever the skeptic, countered: “Why be positive when you can be cynical?” In his view, this looks like “a major heat check before the IPO.” While becoming a neocloud might be “a more believable business in the near term,” it’s unlikely to excite outside investors over the long haul. (And let’s not forget the environmental lawsuit xAI is facing over Colossus 1.)

Here’s a preview of our conversation, lightly edited for clarity.

**Sean O’Kane:** I always appreciate a surprise, especially when everyone’s focused on something else, like a major trial happening this week. Out of nowhere, SpaceX—and by extension its AI subsidiary xAI, which apparently no longer exists or is about to be dissolved—struck a deal with Anthropic. Essentially, Anthropic is taking over all the computing power at the Colossus 1 data center in Memphis, Tennessee, to support its enterprise-focused AI products. There’s been plenty of reporting on how Anthropic has been scrambling for more compute, so this deal feels like an escape valve for them to access all that capacity. In the short term, for xAI and SpaceX, this means they’ve become a neocloud—they had to do something with all the compute they were building, since it seems they weren’t going to need it for Grok. Outside of X, Grok hasn’t exactly taken the world by storm as the next big consumer chatbot.

**Kirsten Korosec:** For those unfamiliar, a neocloud is essentially buying GPUs from Nvidia and similar companies, then renting them out instead of using them to train your own AI models. It’s a different business model. Our AI editor, Russell Brandom, makes an important point: many companies are building out data centers, but when given the choice between renting out that compute or using it for their own AI training, they still prioritize internal model development. That suggests xAI might not be doing much on the AI training front.

**Anthony Ha:** Right, and as Sean hinted, Grok isn’t exactly known for being cutting-edge—it’s more notorious for generating unpleasant or even illegal content. When you think about enterprise AI, which we’ll dive into later, you don’t hear about people relying on Grok for critical work tasks. So the big question is: How can xAI actually make money? Selling infrastructure could be one of the main ways.

**Kirsten:** You could take a positive view on that—they’ve found a way to generate revenue. But when you’re positioning a company like SpaceX or xAI as innovative and forward-looking, it’s harder to sell that story if you’re just renting out GPUs instead of using them for groundbreaking work.

**Sean:** But why be positive when you can be cynical? This looks like a major heat check before the upcoming IPO, which SpaceX is about to push into the markets. Anthony, you mentioned that not only is Grok not used for big enterprise tasks, but there have been reports that xAI employees were using other models internally—not even Grok. That caused a major shakeup inside xAI after SpaceX acquired it, with all the co-founders leaving except Elon Musk. He essentially said he’s starting from scratch on xAI, despite SpaceX paying $250 billion for it in the lead-up to this mega-IPO. Now he’s talking about dissolving xAI as a separate entity within SpaceX and calling the whole thing SpaceXAI—because this man loves ruining brands with value, just like Twitter. In the near term, this neocloud model might be more believable and attractive to investors at IPO time, since it’s more reliable and tangible than being a frontier lab developer. But it’s also not the kind of business that typically draws the same outside investment that frontier labs get. That’s one of the biggest tension points we’ve seen emerge during this IPO process.

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